Tuesday, February 5, 2008

In the constituent assembly in 1948, Dr B R Ambedkar, the chairman of the drafting committee, had clearly reasoned why no political ideology, socialism or anything else, should be included in the Constitution, binding the future generations. But in 1976, under her emergency rule, Prime Minister Indira Gandhi introduced the 42 amendment which among many other things, also introduced "socialism" in to the preamble. Now, 0ver fifteen years since India began to liberalise and reform our economic system, and began a slow journey moving away from the socialist policies that had strangulated the economy, "Should India remain a socialist republic?" I ask this question in view of a recent PIL that raised the same question in the Supreme Court, on 5 February 2008.

Last month, the Supreme Court issued notice to the Government of India and the Election Commission in response to a petition questioning the constitutionality of India being a socialist state. The judges wanted to hear about the practical and legal implications of having a socialist intent in the preamble which has led to the changes in the Representation of People Act, making it mandatory for all registered political parties in India to affirm to socialist ideals.In 1976, the preamble to the Constitution was amended to make India a "sovereign, secular, socialist, democratic republic". Thirty years later, a new generation of Indians, want to undo that historic mistake.Dr. B. R. Ambedkar specifically explained the reason for the non-inclusion of the word "socialism", when it was sought to be inserted into the preamble by another member. He stated in the Assembly on 15th November, 1948:

"What should be the policy of the State, how the Society should be organized in its social and economic side are matters which must be decided by the people themselves according to time and circumstances. It cannot be laid down in the Constitution itself, because that is destroying democracy altogether. If you state in the Constitution that the social organization of the State shall take a particular form, you are, in my judgment, taking away the liberty of the people to decide what should be the social organization in which they wish to live. It is perfectly possible today, for the majority people to hold that the socialist organization of society is better than the capitalist organization of society. But it would be perfectly possible for thinking people to devise some other form of social organization which might be better than the socialist organization of today or of tomorrow. I do not see therefore why the Constitution should tie down the people to live in a particular form and not leave it to the people themselves to decide it for themselves."[Source: Constituent Assembly Debates, Vol. VIII, pp.401-402]

In 1950, when the people of India adopted the Constitution, the Preamble read:

"We, the people of India , having solemnly resolved to constitute India into a Sovereign, Democratic Republic and to secure to all its citizens:

Justice - social, economic and political;Liberty of thought, expression, belief, faith and worship;Equality of status and of opportunity before law."

A quarter Century later, the Congress government under Prime Minister of Mrs Indira Gandhi, during the dark days of emergency rule, passed the 42nd Amendment to the Indian Constitution in 1976. Among many other things, the Preamble to the Constitution was amended to include - secular, socialist, - to state India to be a "sovereign, secular, socialist democratic republic".

The purpose of the amendment to include "socialist", was stated in the Statement of the Objective -

Addition of the word 'socialist' indicates incorporation of the philosophy of socialism in the Constitution and may enable the courts to lean more and more in favour of nationalization and State ownership of industry.

Thirty years later, a PIL is seeking to question the constitutionality of amending the Preamble. There are major legal grounds for such a question.1. Inclusion of "socialist" in the Preamble is against the original intent of the founding fathers2. By including socialism, democracy, which has been accepted as one of the "basic features" of the constitution is being violated.3. Democracy gives the people the freedom to choose the nature of social organisation of the state under which they want to live, and change that order if they deem necessary. So it unconstitutional to tie the future generations to only a particular type of social organisation - socialism.4. If the objective of the 42nd amendment is to be accepted, then either the Indian state, which over the past two decades, has been trying to withdraw from many economic activities, is no longer following that socialist objective; or that times have changed, and that objective is no longer desired by the people, and has become obsolete.5. All most all the major countries of the world, which had incorporated "socialism" as the only political ideology of the state, had turned in to one party, dictatorship. This could not be the goal of the world's largest and most vibrant multiparty democracy.

This is no longer an issue of political semantic. If the preamble was a mere statement of intent, without any particular legal force, one could perhaps ignore this aspect. Many people have legitimately different perspective on different aspects of the Indian constitution, yet the basic structure of the constitution is acceptable to most. But the socialist intent of the preamble has been extended as a law in to the Representation of Peoples Act, 1951, through an amendment in 1988 by the Congress government under Rajiv Gandhi, which enjoyed unprecedented majority in Parliament. The bill was passed without a single dissenting vote.

Section 29A of the RPA, requires that any political association that seeks to register itself with the Election Commission of India, needs to file an affidavit affirming to socialism. This in effect means that only political parties with socialist ideology can undertake legitimate political action, and campaigns in India . On the other hand, independents and non-registered political parties can promote any ideology, and if elected, can join the ranks of the legislators.

This provision in the election law could easily be found to violate of the freedom of association, as well as freedom of thought and expression, some of the fundamental rights guaranteed under our constitution. Clearly, this affirmation to socialism goes much beyond the "reasonable restriction" doctrine that circumscribes the fundamental rights.

An historic opportunity has come our way to focus the spotlight on the political ideologies and principles, one of the legitimate purposes of democratic governance. Even more importantly, this is an opportunity to appreciate our constitutional structure that provides legitimate space to all ideologies to compete for the attention of the people, without legally restricting that space to any one preferred political theory.

A time comes for every generation when they have to face test of history. Sixty years after India gained its Independence from British colonial rule, We the People, have to decide, whether we want to be in the dustbin of history by continuing to align ourselves with a failed political ideology, or be shown to be hypocrite declaring a principle, and then rejecting it in practice. Or, do We the People have the freedom to chart our own destiny in the democratic miracle that is India. Today, We the People need to judge our past, so that we can come out with our heads high, when the future generations sit on judgement over us. On the sixtieth anniversary of our Independence, this would be the most appropriate reaffirmation of our faith in constitutional democracy.

It is legal to invoke eminent domain to acquire private land for industrial projects, even though the investors could afford to buy the land. But why can't a farmer buy a thousand acres. In this article "Free India's land market", published in the Mint, on 4 February 2008, I look at the problems affecting land market.

Small as it is, the Tata Nano has sent the world automobile sector into a big spin. The Nano reflects the potential of the new industrial revolution, which has so far passed India by. However, for the manufacturing to take firm root, the land needs to be prepared.

The Nano has been developed in four years. But Tata Motors may not have been able to buy the necessary land from landowners during the same period.

Which leads us to the question: Why is it legitimate to acquire land for industrial use, but prohibit farmers from consolidating and expanding their landholding to improve agriculture? Why shouldn’t a farmer be able to legitimately acquire a thousand acres?

Indian industry can raise capital from the global market on the basis of a prospectus, which promises performance in the future. But Indian farmers can’t raise adequate capital on the basis of the land asset which they already possess.

The most significant fallout of the Nano is the realization that low-cost manufacturing is not the exclusive domain of China. The Nano’s real contribution will be to demonstrate the competitiveness and technological viability of manufacturing in India. The industrial revolution may yet come to India, riding the Nano; a century late, perhaps, but better late than never.But one swallow does not make a summer. One Tata Motors factory in Singur will not be able to spur the much-delayed industrial revolution.

Much more economic reform is necessary if India is to experience the much-needed industrial revolution. But the Nano gives us a glimpse of the possibilities.

Let’s take the Singur connection. The debate should not be for or against industrialization. The real debate ought to be on the glaring discrimination between agricultural land, and non-agricultural usage of that same land. Apparently, 40-50% of agricultural landowners are believed to be willing to sell their assets, at least partly, and move their economic activities beyond agriculture. It is imperative to facilitate this shift from agriculture to industry, and then to services.

No country in the world has been able to develop by keeping the bulk of its population dependent on land. With almost 60% of the population dependent on agriculture, which today contributes less than 20% of India’s GDP, it is no surprise that agriculture has become synonymous with poverty. The only way to pave the way for development is to increase agriculture productivity and at the same time absorb millions of people in non-agricultural activities.

However, it is critical that the value of the land of farmers, often their only asset, is maximized, and it is made simple to capitalize. The problem facing the poor is not their poverty, but inability to capitalize their assets. Typically, agricultural land hardly fetches Rs2-3 lakh per acre. Agriculture income, even if the land is cropped twice a year, can hardly be more than Rs30,000 per acre, at current productivity levels.

Restrictions such as zoning, land ceiling and land use laws, along with unclear titles and poor land records, grossly undervalue land prices. On top of that, there are transaction costs such as registration fees, property tax, etc. The result is a greatly distorted land market. At one end, there are landowners, millions of small and marginal farmers, who can’t even know the market value of their land. At the other end, there are the land mafia and speculators, who make a killing because of the large gap between restrained supply and inflated demand.

The Tata Motors project in Singur illustrates this quite vividly. This Rs1,500 crore project needed about 1,000 acres of land. For a typical industrial project of this kind, land rarely contributes 10% of the project cost. This means, Tata Motors could have purchased the land for around Rs150 crore. Or in a functioning land market, could have leased or rented the land at a much lower capital cost. This would translate to a price of around Rs15 lakh per acre in the Singur area. Tata Motors, with a production of about 250,000 cars per year, could have a turnover of Rs2,500 crore. One doesn’t have to be a financial wizard to know that if the Nano finds acceptance among buyers, this project would be an eminently viable one.

Rather than opposing land acquisition by the state, farmers may freely agree to sell their land if the offer is attractive enough. But they should be equally free not to sell, and instead give the land on lease or rent, and earn an assured return. The industry could also offer shares or bonds in lieu of land. Or even provide alternative land if the farmer decides to continue with his vocation. In an open land market, with protected property rights and security of contract, there would be a wide range of choices to meet almost every requirement. Only then would agriculture and industry become truly equal partners in the process of economic development, rather than being pitted against each other.

If the government no longer tries to act as a broker in industrial mergers and acquisitions, there is no reason for it to become a land broker either. But for this to happen, we need to radically liberalize the land market. If we are beginning to enjoy the fruits of industrial liberalization, and the Nano is a product of that reform, the potential benefit of unlocking the economic value of land is beyond our imagination.

The success of the Nano, coupled with the bitter debate over land in Singur, should help us appreciate the urgent need for liberalizing the land market, and pave the way for truly “inclusive growth”. Farmers as well as industrial enterprises deserve this. The Nano is a small car, but if it helps expose the self-imposed brakes that have held back our economic development, it could drive us towards a new industrial dawn.